Quick Facts

Albania’s economy has benefited substantially from increased openness and flexibility over the past decade. Although the state continues to control key enterprises, particularly in the energy sector, the economy is mostly in private hands. Beneficial structural reforms have included bank privatization, implementation of competitive flat tax rates, and modernization of the regulatory environment.

Economic Freedom Snapshot

2016 Economic Freedom Score: 65.9 (up 0.2 point)

Economic Freedom Status: Moderately Free

Global Ranking: 59th

Regional Ranking: 27th in Europe

Notable Successes: Trade Freedom and Monetary Freedom

Concerns: Property Rights, Corruption, and Labor Freedom

Overall Score Change Since 2012: +0.8

Deeper institutional reforms to reduce labor market regulations and increase the efficiency of the judiciary, which remains subject to political interference, are critical to further success. Corruption continues to undermine the prospects for long-term economic development. Expansionary public spending has led to budget deficits and rising public debt, now over 70 percent of GDP.

Background

Socialist Edi Rama was elected prime minister in June 2013, defeating eight-year conservative incumbent Sali Berisha. As promised, Rama secured European Union candidacy status in June 2014. Albania achieved full membership in NATO in April 2009 and continues to make a small contribution to the NATO-led mission in Afghanistan. A Strategic Partnership agreement with the U.S. is intended to increase cooperation, including improvements in the rule of law. Albania receives significant foreign direct investment to fund development of its oil and natural gas resources. Its transportation and energy infrastructure remain poor by European standards. The economy is dominated by agriculture, which employs about half of the workforce, and services, including tourism. Growth is tepid, hampered by high public debt and corruption.

The arrest of the central bank governor in September 2014 may be a turning point in attitudes toward malfeasance as Albania seeks to join the European Union. The EU is demanding reforms in the judiciary and law enforcement agencies to combat deeply rooted corruption and organized crime. Judges sometimes face threats and physical violence. Protection of intellectual and real property rights is weak, particularly for land tenure.

The top individual income tax rate is now 23 percent, and the top corporate tax rate is 15 percent. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 21.7 percent of total domestic income. Government expenditures stand at 28.9 percent of GDP, and public debt, which has increased since 2007, has reached a level equal to over 70 percent of GDP.

The entrepreneurial regulatory framework has become fairly streamlined, and starting a business takes less than the world averages of seven procedures and 30 days. Minimum capital requirements are modest. Despite some reform, labor market rules remain relatively rigid. Government subsidies and price controls distort domestic prices for electricity, water, agricultural products, and railroad transportation.

Albania’s average tariff rate is just 1.2 percent, and its trade and investment policies are much more open than the global average. The government officially welcomes investment in most sectors of the economy. The banking sector, which remains relatively well capitalized, consists mainly of subsidiaries of foreign banks and remains relatively stable.